Yellen: Fed Funds Rate Key to Policy Communication

The video tutorial discusses the Federal Reserve's approach to normalizing monetary policy by adjusting the federal funds rate. It explains the expected variations within the target range and the tools used to maintain the rate, such as the interest on excess reserves (IOER) and overnight reverse repurchase agreements. These measures aim to ensure stability in financial conditions and the broader economy.

What is the committee's initial step in the normalization process?

• Lowering the federal funds rate

• Raising the target range for the federal funds rate

• Increasing the money supply

• Reducing the interest on reserves

How does the committee expect the effective federal funds rate to behave within the target range?

• It will decrease steadily

• It may vary and occasionally move outside the range

• It will remain constant

• It will always be above the target range

What is the primary tool for moving the federal funds rate into the target range?

• Open market operations

• Quantitative easing

• Interest paid on excess reserves (IOER)

• Discount rate adjustments

Why does the committee expect the federal funds rate to trade below the IOER rate?

• Due to a lack of reserves

• Because reserves are plentiful

• Due to a strong economy

• Because of high inflation

What facility does the committee plan to use to ensure the federal funds rate remains in the target range?

• Open market operations

• Term deposit facility

• Overnight reverse repurchase agreement facility

• Discount window